This article explores how e-transfers work, how to protect bank accounts from identity theft, how banks investigate fraudulent transactions, and what you can do to ensure safe e-transactions.
According to the United States Electronic Fund Transfer Act of 1978, e-transfers are defined as,
“A funds transfer initiated through an electronic terminal, telephone, computer (including online banking) or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer’s account.”
Electronic fund transfers (sometimes known as ‘e-transfers’) are called by different names around the world.
- In the US, they can be referred to as “electronic checks” or “e-checks.”
- In the UK, the terms “bank transfer” and “bank payment” are used.
- In several European countries, the term “giro transfer” is widely used.
How Do E-Transfers Work?
Online money transfers are the modern equivalent of wiring money. You can instantly send someone funds by transferring money (or the data that represents that money) from you to another person.
A typical transaction mainly involves contact information — such as a phone number or an email address — for the sending and receiving parties, tied to a bank account. Usually, for a small fee, online money transfers can be done from secure, web-based services.
The process is straightforward and often works like this:
- The sender opens an online banking session and specifies the recipient, amount to send, as well as, a security question and answer. The funds are debited instantly, usually for a fee.
- The sender sends the security answer separately to the recipient, usually via another medium, for security purposes.
- An email or text message is then sent to the recipient, with instructions on how to retrieve the funds and answer the question.
- The recipient must answer the security question correctly. If the recipient fails to answer the question correctly within a set number of times, the funds can be returned to the sender.
- If an e-transfer has not been accepted after a certain period, it will not go through. The transfer duration depends on the bank and/or the person’s settings.
In some cases, you do not need to have a bank account to send money online or even to receive an online transfer. A credit card or cash can be used instead, which may incur higher fees.
Common reasons to use e-transfers include:
- Mailed checks take days to be delivered and could get lost in the mail or stolen.
- If money is being sent internationally, there is the question of currency conversion fees, which are usually more expensive than money transfer fees.
- Online money transfers are near-instantaneous with no physical complications to anywhere in the world.
Are E-Transfers Safe?
E-transfer fraud occurs when a third party intercepts a transfer by hacking into a person’s email account and correctly guessing or finding the answer to the security question. They then deposit the money themselves, and it never reaches the intended recipient.
E-transfer scams are usually people asking for money (either for themselves or for you to buy a product/service) or people asking you to donate to a cause. Coronavirus scams are an excellent example of this: many asked people to e-transfer money to fund vaccines, PPE, and testing kits that never got delivered.
While no payment or collection system is 100% safe; there are extensive safety measures to ensure that e-transfers are protected, including:
- Multiple layers of data encryption. This means that data is coded multiple times so that, if it’s stolen or hacked on its way to the recipient, it cannot be read by others.
- Fraud prevention. Reputable e-transfer companies require you to answer security questions, give a unique code, or verify your identity. This is to ensure the safety of your money transfer(s). Sending funds to a suspicious receiver or using a new device to log in can trigger the occurrence of fraud.
- Identity verification. If the provider requires a secure password or logs you out automatically after a specific amount of time, then it can be a good indication that they follow precautions to ensure your money is safe throughout the process.
- Automated Clearing House (ACH). In the US, all online banking transactions, including online money transfer services, are processed by the Automated Clearing House (ACH), an independent agency that offers secure financial data transmission.
Various services offer varying protection levels, such as confirmation phone calls to both parties (who have to verify private information), confirmation emails, and even insurance policies that guarantee your money will be sent. Some providers limit how little or how much money can be sent, and how much can be transferred in a period of time.
The industry is regulated with several authorities providing licenses to companies specializing in money transfers. So, it is important to go through reliable, reputable, licensed money transfer companies.
When sending an e-transfer, the sender has some essential responsibilities:
- Providing an accurate email address for the recipient.
- Including an effective security question and answer that is not easily guessable and is known only to the sender and the recipient.
- Not including the password or code in the message that accompanies the transfer.
- Ensuring passwords or codes are something that only the recipient knows. This means avoiding easily obtained or guessable information like names, birth dates, places of employment, etc.